One of my favourite ways to help a client to focus is through the use of critical success factors (CSF) and key performance indicators (KPI).
Yes we are back in the land of the three letter acronym and these two are particularly important to remember and they apply to any business, large or small, manufacturing, retail or service.
What Are Critical Success Factors?
Critical success factors are the few things that you must do really well if you are going to deliver your overall strategic goal, objective or mission.
They are the few things that really matter in your business.
You Can Have Too Many Critical Success Factors
Because critical success factors are about focusing time, energy and attention, you can have too many. I find that five to ten is about right and ideally about seven.
More than that and you'll struggle to remember them all and remember them you must. The purpose of critical success factors is to guide your decisions and actions so that they are consistent with your bigger purpose.
Critical Success Factors Are Individually Necessary And Together Suifficient
Each critical success factor is a necessary condition which muct be acheived if you are going to be successful in your overall objective.
Together they must be sufficient if you are ssuccessful in achieveing each individual critical success factor, then you achieve your goal.
Where Do Critical Success Factors Come From?
Your critical success factors come from your strategy process.
In particular there are usually two types of important success factors:
Industry key success factors - these are the things that everyone in the industry or market has to do well to be successful. These are often "industry recipes" of success and sometimes the common wisdom is very valid, other times, it needs to be challenged.
Key factors of difference - these are your differentiation factors. the few things that make more business more attractive to certain types of customers with certain types of problems.
Key Performance Indicators
Key performance indicators are the inevitable second part of critical success factors.
If something is important, vital to business success then you need to know how well your business is performing.
If things are performing well, you can take comfort from knowing that the issue is under control.
If the key performance indicators show that there are problems, you need to find out the causes and take corrective action.
Sometimes these KPI will be financial, other times non-financial measures are much more meaningful.
The aim is to capture the critical success factor in the key performance indicator in a way that shows what accountants call a "true and fair view". It is more important that it gives clear signals of performance than being precise and totally objective.
You also need to check that performance to achieve this key performance indicator (and underlying critical succes factor) won't adversely affect the other key performance criteria.
Key Performance Indicators Can Have Unintended Consequences
I wrote an article on this point after I read about patients being left in ambulances because the Accident & Emergency departments had a target of seeing all patients in four hours, meaning the ambulances couldnt answer other emergency calls.
How Many Key Performance Indicators Do You Need?
I love one page management reports which summarise the entire business.
Ideally each critical success factor would have one key performance indicator.
Unfortunately this isn't always possible. Some critical success factors are complicated and have multiple dimensions of performance or clear cause and effect which you need to understand.
Knowing you have a cashflow problem is one thing, backing it up with aq measure for overdue debtors (accounts receivable) gives you an indication of what can or can't be done and who needs to be doing it.
One popular performance measurement methodology is the balanced scorecard which has four dimensions and it's recommended that each dimension has four or five measures.
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